EFFECT OF MULTIPLE TAXATION ON FINANCIAL PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISES: LOGIT AND PROBIT APPROACH

Abstract

This study investigated the effect of multiple taxation on the growth of SMEs in Abakaliki, Ebonyi State, Nigeria. We surveyed 400 SME operators in the area capturing profit level, whether they paid tax, tax type paid, when the business was first taxed, whether they paid multiple taxes, business location, and energy source. Profit was ranked from low to high which necessitated the application of ordinal logistic and ordinal probit regressions. The ologit result revealed that tax payment significantly decreased the log odds of a higher profit level by -0.7 units. Whereas sales tax and royalties have no significant effect on growth, payment of environmental levy and business premises levy significantly decreased the log odds of attaining a higher profit level by -0.133 and -0.134 respectively. Also, being taxed from the second year of the business reduced the log odds of a higher profit level by -0.37 while the same would increase by 0.22 if taxed from the third year. Overall, multiple taxation resulted in lower log odds of a higher profit level. Similarly, the marginal effects results showed that multiple taxation increased the probability of a SME reporting a low profit by 7%, and decreased the chances of a normal or high profit by 5% and 3% respectively. The study concludes that multiple taxation is killing SMEs in Ebonyi State. The study recommends that the State Government should charge only environmental or business premises levy and not both. Also, SMEs should be granted at least 2 years of tax holiday to encourage their survival.